Client didn't file in 12 or 13. he came to me I filled them out, gave them to him to sign and pay (really wasn't able to pay, but thought we should file and get the process started). Client's dad, who will probably do the paying, has been looking for the IRS letter to know what penalties, interest, etc. It's been 5 months. I call today, the returns have not been received by IRS. I asked the IRS guy if there have been any letters sent to my client about not filing, and he said none. How long does it take for IRS to catch up on these delinquent returns? Of course client had lost all of his documentation, but I got a wage and income transcript and he owes. I have now left a message with client about this. What happens if he doesn't file, can't pay? He owns nothing and right now doesn't even have a regular job. Are there any other options?
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JenMO my question to you is why did you not e-file 12 and 13? I did several new clients this year. And except for one all got installment plan approved!
If your clients paper filed and lost all documentation including proof of mailing, you may have to start all over again if IRS does not find them and respond.Taxes after all are the dues that we pay for the privileges of membership in an organized society. - FDR -
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Method of who & when filing returns and any tracking?Originally posted by JenMO View Post
Of course client had lost all of his documentation - does that include any documentation possibly received since filing?
What happens if he doesn't file, can't pay? He owns nothing and right now doesn't even have a regular job. - can't pay who?
It's been 5 months - have you received any payment ?
right now doesn't even have a regular job - good luck - maybe that should tell you something about this but you know the client better than usAlways cite your source for support to defend your opinionComment
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I don't know why I didn't efile, used to you couldn't efile prior year returns and that has stuck in my head. He owes IRS and has no money, and not much of a job. and yes I did get paid. I thought you had to file before getting an installment plan and rec'd the letter from irs about not sending money.Comment
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You can include the form with the return or apply separately. If you've already filed, then online has the lowest set-up fee.Comment
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Agree
Agree with LION. Also consider e-file the returns if you can.Originally posted by Lion View PostAlways cite your source for support to defend your opinionComment
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I guess if he "forgot" to mail, I could still efile both 12 and 13? does IRS do any abatements or considerations if the client just does not have any money or assets?Comment
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No abatements that I am aware of but because of his zero income status he will qualify for the reduced installment fee. E-file 12 and 13 with it and see what happens.Taxes after all are the dues that we pay for the privileges of membership in an organized society. - FDRComment
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More
More work for you! See reference to know what's involved and what your fee is going to be.Originally posted by JenMO View Post
Reference
Always cite your source for support to defend your opinionComment
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There aren't any abatements for not having the money or any assets--I checked with the Taxpayer Advocate last month. You have to have "reasonable cause" ("sickness" is best) and most simply don't have the money (and might not pay if they did), period. There IS a first-time abatement (FTA) for penalties (poster Kram Bergold once put me on to it), but it's gotten harder to qualify and first, taxpayers have to be current-filed. I sent off a form 843 (TA recommended it) last month but don't expect much; my guy's current-filed, working, on a 9465 but simply couldn't pay the tax due-credit's shot and can't get a pay-off loan anywhere-IRS FTP pens on $15K are eating him alive.Originally posted by JenMO
No IRS contact yet about '12 and '13 is not unusual -- mostly I don't see them 'til 3-4 years have passed. Your guy will probably get one in a year or two.
Since IRS doesn't have it by now, most likely he originally got scared (without hearing from IRS) and had you write up the stuff, but didn't mail it. Possible whys: he got over his conscience-crisis, or he didn't want to tell his dad about it, or he never intended to mail them in the first place (if IRS wrote later he'd say he was terribly sorry, he'd had them prepared earlier but forgot to send 'em off, and would mail them ASAP).
I, too, paper-file old returns (for the same reason you stated), but looking back, I guess efile would have at least let you know for sure if IRS had it (although almost surely they haven't) if that is your main concern now. Like you, most of us want to help the taxpayer even if they're sometimes balky, unreliable, and less-than-forthcoming, but it looks like you've done all you can given the client's response. You've done your duty and got your money, so if he comes back, maybe give him new mailing copies, tell him to send them certified return receipt, and then forget about it.
The delinquents-what can we say about them? All you know is what they tell you and many times it's not the full truth. They get a letter, are desperate to file jiffy-quick, and if you give them a pick-up date of more than a month and they get no more IRS letters, the odds are very good you'll never hear from or see them again. So NJ was right in emphasizing that you get your fee up-front (years ago I had a box full of no-show old returns until I began collecting before writing).
Last edited by Black Bart; 05-09-2015, 02:27 PM.Comment
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Nice summary Bart. I think you and several others put this entire thing in perspective. Those returns are probably sitting in a drawer somewhere in the client's home or office, and the client knows exactly why they haven't shown up. One thing I think the client should know is the true cost of delay. I worked this up for a client some time ago, and there is some ineresting math at work.
First of all, if we dispense with the distinction between interest and penalties and just regard everything as a cost of the use of money, the math becomes simpler. There isn't anyu eason not to take this approach for personal taxes, because there's no tax deduction for the interest. So the taxpayer is netural about what we call it, and we can roll it all together, expressing it as an APR. Secondly, this tax debt didn't occur in a vacuum. The unpaid taxes were used for something. Maybe it was a motorcyle, boat, or a cruise. Or maybe the money was used to pay other more presseing debts. In any event, there was an economic benefit realized from the unpaid taxes. All spending decisions have consequences - either foregone income or interest paid.
If the return is more than 5 months delinquent, there is a flat 25% FTF penalty assessed. Then there's a FTP penalty of 1/2 of 1% per month, which equates to a 6% APR. Then there's the interest itself, which is in the range of about 3-4% right now. So the running cost is roughly 10% APR.
Filing the return 1 year late incuurs a cost of 35% APR. But since the FTF penalty never changes, the running cost is sitll only about 10% APR. So a return filed 2 years late incurs a cost of 22.5% APR. And the average annual cost of a return filed 3 years late drops to 18% APR, or close to credit card rates. The dollars add up, but the cost of the use of the money is actually decreasing on an annualized basis. Compounding has some small effect on these figures, but almost any borrowing follows the same pattern.
Furthermore, if the return is already late, then the 25% is essentially a sunk cost which inreases the base debt but doesn't increase the financial pain beyond the initial hit. Short of an abaement, nothing changes that fact. So the taxpayer is really only dealing with about a 10% APR once that threshhold is covered. Most people in that situation can't borrow money at less than 10% for an unsecured loan, so it really isn't such a bad deal once they make the big mistake of getting themselves into the situation. They simply need to focus on getting out of it, recognizing that under those circumstances IRS is a fairly generous lender, all things considered.
The above is partiallly why I tell people who owe taxes which they can't pay that they shouldn't stess out over the penalties & interest. Obviously it's best not to owe IRS or anyone else, and the best thing to do is simply write a check and pay the taxes. But if they were actually able to do that, we wouldn't' be having the conversation in the first place. And in most cases it's a mistake to borrow money from credit cards or get a HELOC to pay their tax debt. If they qualify (under $25K/%$$%50K, 5 year repayment, no other tax debt or delinquencies) etc) , an Installment Agreement is the best course of action. It doesn't affect their credit record and it doesn't impact their ablity to borrow for other reasons.
As accountants and tax preparers, we can be influenced to develop tunnel vision about these issues. And IRS confuses the issue by sending out convoluted account statements that would probably get your average bank or business in all sorts of trouble with the Consumer Protection Agencies. But for someone who doesn't have the money and sincerley wants to get squared up with IRS, the running cost isn't that bad.Last edited by JohnH; 05-09-2015, 06:21 PM."The only function of economic forecasting is to make astrology look respectful" - John Kenneth GalbraithComment
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JohnH
Wow. Is this your dissertation for your PHD in taxation?
You put a lot of effort in this post. If you said that to the client they probably would understand .001% of it in this scenario. Very well written.
Another way of telling them might be, your gonna owe big time with interest and penalties plus the tax you owe and they want their money.Always cite your source for support to defend your opinionComment
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I did get a little carried away, didn't I? But I think it's important to give them the facts. Most of what I posted wouldn't be discussed with the client. For delinquent filers, the 25% FTF penalty has already been assessed, so there's no planning to be done there. That train has left the station. So now it's a matter of distilling it down to how to handle the debt.
They have a debt and need to know how to handle it & what it's going to cost them. At that point, the cost of borrowing from IRS is roughly equivalent to a 10% APR. If they qualify for an Installment Agreement, that's good information. And it's actionable."The only function of economic forecasting is to make astrology look respectful" - John Kenneth GalbraithComment
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In closing
The more experienced one becomes in the profession, you know when a line has to be drawn where business is business and charity is charity.
You can tell which clients seriously want to get their issue resolved and those who can care less.
That's why it is important to have consultation fees and require immediate payment of the fees. It helps distinguish the clients that you want and those you don't. Business is business and charity is charity. Decide what type of practice you want.Always cite your source for support to defend your opinionComment
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No, he's not telling them that; he's telling them this:Originally posted by taxnj
it's not much more than the cost of a loan on a good-rate credit card. Still, JohnOriginally posted by JohnH
, I think I'd have a hard time convincing my client (who's run up $1945 in FTP charges so far) of it, notwithstanding the fact that he's a 1099 construction worker who's been adding about $3K per year in unpaid taxes for the past five years might have a lot to do with it.
Last edited by Black Bart; 05-09-2015, 09:29 PM.Comment
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